[¶1]
This case involves a dispute between mineral developers in
Wyoming's Powder River Basin. Berenergy Corporation
produces oil from several sites under three oil and gas
leases granted by the United States Department of the
Interior, Bureau of Land Management (BLM). The surface area
covered by those leases and wells overlaps lands that,
pursuant to BLM coal leases, affiliates of Peabody Energy
Corporation (Peabody) are planning to strip-mine.

[¶2]
Berenergy's suit eventually led to cross-motions for
summary judgment, the district court's April 1, 2015
"Order Granting in Part and Denying in Part
Plaintiff's Motions for Summary Judgment and Granting in
Part and Denying in Part Defendants' Motion for Summary
Judgment, " and the court's October 13, 2016
"Order Declaring Rights Pursuant to the Court's
Summary Judgment Order Dated April 1, 2015, and Granting
Incidental Relief to Enforce Declaration."
Berenergy appealed the aspects of those orders that
essentially required it, at the appropriate times, to cease
production and cap its wells below the projected coal seam,
so that Peabody could "mine through" the affected
areas. Peabody cross-appealed the aspects that required it to
place over $13, 000, 000 in escrow to cover Berenergy's
additional costs, if it was in the future granted permission
by the Wyoming Oil and Gas Conservation Commission to
directionally drill an offsite well for enhanced water-flood
production of the oil to which it was entitled.

[¶3]
We remand the case with directions for further proceedings
before the district court, despite our belief that the case
will most likely have to be dismissed.

ISSUE

[¶4]
Considering our disposition of this case, we reduce
Berenergy's several intertwined issues into a single
issue:

Does this case present a justiciable issue when this Court
cannot render a decision binding on a federal agency, and can
only offer an advisory opinion which may or may not
ultimately bind the parties?

Our
resolution of that question makes it unnecessary to address
any issues relating to the monetary aspects of the district
court's challenged orders.

FACTS

[¶5]
This case involves complex facts and issues, but given the
relatively narrow question we address, we will limit our
statement of the facts to those pertinent to answering it. On
May 6, 2014, Berenergy filed a complaint for a declaratory
judgment that the terms of its earlier-granted BLM oil leases
provided it with rights superior to any obtained by Peabody
through its later coal leases. It alleged that its superior
rights precluded Peabody from forcing it to shut down its
wells for fifteen to twenty years, with no compensation,
while Peabody mined through the areas containing or
immediately adjacent to those wells. It sought declarations
to that effect, and to prevent Peabody from conducting its
mining operations in such a fashion as to interfere with
Berenergy's operations, including its plan to increase
production by water-flooding the oil-bearing formations
covered by its leases.[1]

[¶6]
On June 19, 2014, the case was removed to the United States
District Court for the District of Wyoming and effectively
joined with a suit previously filed by Peabody, which related
to the same leases and raised similar questions. The cases
were remanded to the state district court approximately a
month later after the federal court dismissed them for lack
of federal question jurisdiction.

[¶7]
On October 24, 2014, Berenergy filed a motion for a partial
summary judgment which largely reiterated the points in its
complaint. It also clarified that its primary claim was
intended to sound in contract, that it rested on the
effective dates and the allegedly unambiguous language of its
BLM leases, and that nothing in the Mineral Leasing Act of
1920 (MLA) or the regulations issued under the Act diminished
the superior right it enjoyed over Peabody by virtue of that
language.[2]

[¶8]
On the other hand, Peabody took the position that the clear
and unambiguous language of the oil leases expressly required
Berenergy to give "due regard" to coal development,
to operate its wells in such a manner as to cause
"minimal adverse effect on ultimate recovery" of
coal, and in cases of disagreement with coal lessees, to
submit the matter to the state district court. It argued that
the court was to craft a plan that would maximize production
of both minerals while minimizing harm to both parties, and
to award compensation for any imbalance in the damages a
party might suffer as a result of implementing the plan.

[¶9]
In ruling on the parties' cross-motions for partial
summary judgments, the district court determined that the
language of Berenergy's leases was unambiguous. However,
it concluded that the intent of the parties to those leases,
Berenergy and the BLM, could be divined only by reading their
provisions in conjunction with Peabody's coal leases and
general policy aims articulated in the MLA and the federal
rules and regulations promulgated to give effect to that Act.
Those extrinsic sources, the court determined, implicitly
allowed Peabody to block Berenergy from producing oil-or
Berenergy to block Peabody's coal production-so long as
the restriction was reasonable. Because the question of
reasonableness required factual development, the court denied
the portions of both parties' summary judgment motions
seeking to unconditionally block or permit Peabody's
interference with Berenergy's interests.

[¶10]
Following trial, the district court derived its analysis of
what was reasonable from Wyoming rules governing the review
of State mineral lease conflicts by the Director of the
Office of State Lands.[3] It decided that if the parties could
concurrently produce without materially reducing the quantity
or value of the oil and coal produced, it had to determine
whether Berenergy's operational costs would nevertheless
be increased significantly, and whether Peabody can pay those
costs without unreasonably burdening its operations. From
those determinations, the court would develop a plan for
concurrent operations and assess damages.

[¶11]
On the other hand, if the district court determined that
concurrent production was impossible, it had to examine
whether the value of Peabody's coal so exceeded the value
of Berenergy's oil that both parties and the public would
receive greater benefit from having Berenergy terminate its
current operations, and having Peabody compensate it for its
loss. That compensation must be equal to the value of the
rights lost by Berenergy, as determined in the manner
applicable to condemnation in eminent domain proceedings.

[¶12]
Applying that standard, the district court concluded that
concurrent production under Berenergy's proposals was not
economically feasible, because it would unreasonably add more
than $300, 000, 000 to Peabody's costs to mine the coal.
It also determined that because the value of the coal to be
mined vastly exceeded that of the oil that could be recovered
from Berenergy's existing production from its relatively
old wells, those wells should be shut down, and that Peabody
should compensate it $878, 021 for doing so. In addition to
being compensated for long-term loss of its primary
production wells, Berenergy could also be compensated $13,
051, 084 for increases in the cost of secondary
water-flooding operations on its existing wells from a new
well outside the area to be mined, if such operations were
approved by Wyoming authorities. The latter amount was to be
escrowed with the district court to assure that it was
available if the flooding plan was approved.

[¶13]
Before engaging in this discussion, however, the district
court presciently expressed concern over an aspect of this
case that we likewise find troubling:

The second curious aspect of this case is that despite all of
the leases at issue being Federal leases, the BLM has not
been brought in as a party to this case nor has it sought to
intervene. To the contrary, the BLM seems content to allow a
state court to determine how coal and oil and gas development
will proceed on Federal lands. As the Court noted in its
summary judgment order, the Court believes this is largely a
political issue, which the BLM is tasked with answering. This
is especially true since the Secretary of Interior, the
administrative head of the BLM, is the "statutory
guardian" of the public's interest in minerals. This
Court is not aware of another situation wherein a federal
agency has been so willing not to dictate to the
State's [sic] how things will be done. Political issues
can be thorny, but in this case the political issue of who
should go first (oil and gas or coal) when concurrent mineral
development on Federal lands may not be possible, seems to be
a thorny issue that the BLM should be answering. As Winston
Churchill said, "The price of greatness is
responsibility."

The absence of the BLM, and its refusal to act in light of
clear statutory authority (or duty) to do so is even more
troubling in light of the BLM&#39;s duty to ensure that the
people&#39;s resources, i.e., minerals, are "extract[ed]
in accord with prudent principles of conservation."
California Co. v. Udall, 296 F.2d 385, 388 (D.C.
Cir. 1961). Berenergy, rightfully so, is only interested in
the financial impact allowing coal development may have on
its bottom line. Likewise, and rightfully so, Peabody's
only interest is ...

Our website includes the first part of the main text of the court's opinion.
To read the entire case, you must purchase the decision for download. With purchase,
you also receive any available docket numbers, case citations or footnotes, dissents
and concurrences that accompany the decision.
Docket numbers and/or citations allow you to research a case further or to use a case in a
legal proceeding. Footnotes (if any) include details of the court's decision. If the document contains a simple affirmation or denial without discussion,
there may not be additional text.

Buy This Entire Record For
$7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.